How are MLR Targets Developed?

Service Funds, as it has been established, align financial incentives of the health plan and the provider organization. Health Plans extend Medical Loss Ratio or MLR targets to provider groups to engage them in active management of membership panels. These panel managers are called Risk Groups, and they are typically organizations that provide primary care and care coordination. But how are MLR targets established?

Step 1: Pick the Right Partners

First, insurers must segment their overall enrolled population into meaningful cohorts and identify preferred panel managers for each region. Finding the right partners is critical. The best Risk Groups will have the ability to influence physician behavior to achieve assigned MLR targets.  One thing is certain, provider organizations take many forms.  In fact, organizational design and management structure varies widely among Independent Practice Associations (IPAs), Managed Service Organizations (MSOs), and Accountable Care Organizations (ACOs).

However, some generalizations are possible. Organizations structured with predominantly affiliate models often lack the management infrastructure to effectively carry out managed care objectives. Groups with employed physicians, on the other hand, have a significantly greater capacity to respond to initiatives like coding, post-discharge follow-up and care coordination.

Step 2: Set the Target Properly

Second, each panel manager must accept a medical loss ratio targe